An Analysis of the Typical Mortgage Modification Process at Doan Law Firm
While Doan Law Firm primarily concentrates its practice in Bankruptcy and Personal Injury, we also handle other cases outside of Bankruptcy. In addition to Criminal law, Lemon Law, Employment law, suing creditors in state and federal courts, etc., we have also began modifying mortgages in light of recent economic conditions, in an attempt to save Californian’s from losing their homes. Generally, we are selective in the loans we attempt to modify. Our Mortgage Modification Program is generally available for individuals that have already decided to allow foreclosure and have nothing to lose. If you absolutely do not want to take any risks on losing your home, this program may not be for you.
Our Mortgage Modification Program generally has FIVE (5) Mandatory Requirements:
1) You are UPSIDE DOWN ON THE FIRST MORTGAGE,
2) The property is your PRIMARY RESIDENCE,
3) The property is located in CALIFORNIA,
4) The loans on the residence ORIGINATED BETWEEN 01/01/03 and 12/31/07,
5) You are in DEFAULT or about to go into default.
If you do not meet these requirements, it may be difficult to optimally modify your mortgages, and you will receive less desirable results. You may desire to explore a Chapter 13 Bankruptcy if such is the case. However, if you meet these five requirements, then you can expect the following chain of events in the Mortgage Modification Program:
A: PRE-LITIGATION:
The Pre-Litigation Mortgage Modification process typically takes anywhere from 1 to 9 months, depending upon the lender, present stage in the foreclosure process, and arrears on the property. Unfortunately, in most cases, principal reductions at this stage is minimal to non-existent(while our averages are significantly better than the nation, principal reductions typically happen in less than 5% of cases outside of litigation). Instead, lenders typically only offer “glorified workouts” wherein they simply place the arrears at the end of the mortgage and modify the interest rate or payments temporarily. Because of this, it is generally not advisable to be too eager to negotiate the loan in these early stages due to the limited modifications and market conditions that continue to deteriorate causing a better loan modification and higher principal rate reduction at a later date. Our typical advice on these workouts are REJECT! Notwithstanding, the procedures typically take place as follows:
1) You stop making all your mortgage payments immediately, if you have not already done so. It simply makes no sense to continue payments on property you are probably hundreds of thousands of dollars upside down on and intend to surrender anyways.
2) Legal correspondence is sent to the lenders (first mortgage and all juior lienholders):
- informing them of our representation,
- requesting contact information for legal, loan modification, and risk management departments,
- demanding that no further communications take place with the borrower(s) (phone calls, billing statements, etc),
- requesting that any foreclosure process cease pending loan modification negotiations (a proposed stipulation is sent), and
- other substantive legal requests as provided under Federal law via a Qualified Written Request (QWR).
3) An appraisal is ordered on the subject property.
4) A preliminary forensic audit takes place on the origination documentation to spot lending abuses.
5) A “Demand Proposal for Loan Modification” is sent to the lenders proposing loan modification. Such a Demand typically demands the following of lienholders:
- First Mortgage: New loan balance at fair market value less $40,000, 5% interest, 30 year fixed.
- Second and Junior Mortgages: Reconveyance of lien in exchange for $1,500.00 nuisance payment.
5) Additional follow up correspondence and phone calls continue to be sent until a path of communication is established with the lender(s). This demand stage and establishing the path of communication generally takes 10 to 60 days, although each month we continue to notice improvement as lenders gear up for the nation’s foreclosures.
6) The Lender(s) will typically then make a request for documents (hardship letter, authorization form, proof of income, etc).
7) Additional information is then requested from the client, depending upon the lender, and then forwarded.
(8) The lender makes an offer. Generally it contains no principal balance reductions. The negotiations then commence. Eventually, both sides hit stalemate, unless the lender makes a rare principal reduction or the client accepts the token modification.
9) Case then either resolves or moves to Litigation. NOTE: Case may hit Litigation also at any stage above depending upon when the sale date is set.
Throughout the pre-litigation stage, our clients are also requested to keep track of all communications they have had with their lender(s) since each one is technically a violation of state and federal creditor abuse laws such as the FDCPA and RFDCPA. These violations then serve as causes of action against the lender in the Litigation Stage and also help in negotiations.
B. LITIGATION
If the lender(s) are not willing to negotiate to terms acceptable to our client(s), the sale date is within 30 days, and/or, the lenders refuse to respond, the file moves to litigation. This stage generally requires additional fees and takes place at the client(s)’ request or within 30 days of Sale Date. Our clients may also request that we commence the litigation process at any time, although, as mentioned above, a better deal is usually accomplished with the passage of time and delaying the foreclosure date as long as possible.
1) The litigation stage commences with the filing of a lawsuit against the lender. Generally, there are 5 or more causes of action. Such causes of action typically are for 1) origination fraud, 2) inability to enforce the note under California Negotiability laws, 3) violations of the RFDCPA for contacting the debtors despite our representation, 4) request for injunctive relief under recently enacted CC 2923.6, and 5) failing to timely respond to the QWR. Many of these causes of action contain an attorney fee provision, wherein if the lender loses, they must also pay all our attorney fees, which means reimbursement or all our clients fees!
2) Motions for Temporary Restraining Orders, Preliminary Injunctions, etc., prohibiting the foreclosure from going thru.
3) Recording of a Lis Pendens with the County Recorder, such that the property is now noticed to all that there is presently litigation taking place on the property. This creates a cloud on the title and dramatically interferes with the marketability of the property by the lender(s).
4) Discovery commences. Each side sends the other Interrogatory Requests, Production of Documents, Requests for Admissions, etc. Depositions are also noticed.
5) Various hearings then take place, attempting to resolve the case. Most principal balance negotiations will also start to take place on modifying the loan at this stage, although it can happen sooner. Also, depending upon the egregiousness of the causes of action in the complaint that Discovery produces, the modifications could now be very significant, even to the extent of eliminating the mortgages entirely off the property, although this is very rare.
6) Trial if negotiations fail, Modification if negotiations are successful.
The Litigation Stage generally lasts anywhere from 4 to 18 months, depending upon the case and court docket. All the while, the property remains in our client(s)’ possession and mortgage payments are not made.
No case is ever guaranteed any specific result. Sometimes, a lender might rather take their chances and take the matter to trial. The jury may decide against the client(s). Some clients may decide to let the property go after a year of negotiations. Sometimes a deed in lieu might be the preferred result. Sometimes a short sale is required. Other times, a Bankruptcy may be the best option. Some clients might even prefer to do a loan workout and simply put the arrears at the end of the mortgage, selling themselves short(this is pretty much what every broker is doing outside of here and what we previously mentioned were “glorified workouts” since they have nothing to do with principal reductions).
Accordingly, each case is different and may take a different path. The time frames could vary from 3 months to two (2) years. Each lender has different modification policies both before and after litigation. Clients have differing expectations. Mortgage Modification is not for everyone. But if you are already considering surrendering your property and meet the forgoing 5 qualifications, you will want to seriously consider contacting the Doan Law Firm to explore the Mortgage Modification process in saving your home.
Written by Michael G. Doan